As COVID takes its toll on the insurance markets, one field has seen a drastic increase in their premiums. Directors and Officers Insurance has become extremely important as companies face lawsuits related to the pandemic.
In a recent report by USI, both public and private companies are seeing higher premium increases across the board. This increase began towards the last half of 2019 and continued to accelerate even during COVID’s hold on the world, thanks to excess supply and rising claims. According to Winsee Cheung, FINPRO and Management Placement Leader at Marsh, “Up until 2018, we had over a decade of softening rates and broadening of cover, and that’s really considered a prolonged soft market,” she explained. “Usually, soft markets would last for about seven years, but the last soft market … lasted more like 12 to 15 years.”
“There was a firming in the D&O market going back arguably two and a half years that was accelerated pretty dramatically in 2019, particularly the second half of 2019, for publicly traded companies,” said Andrew Doherty, national D&O practice leader at USI Insurance Services. “Heading into 2020, we anticipated a hardening public D&O marketplace, and we were seeing that, and then COVID-19 proved to be an accelerant.” With COVID, this marketplace has completely turned upside down. It has put pressure on companies to disclose when there’s an outbreak, which means that it’s on the CEO to tell their employees. As many states have a time frame for when to tell their employees, failure to do so could result in more damage to both company reputation and the CEO. Normally, these numbers would be seen during Mergers and Acquisitions, however with the pandemic, those types of transactions have fallen down. “Nonetheless, underwriters are treating 2020 as another year with heightened securities class actions.”
At the same time, there was an increase in claims activity that Cheung called “unprecedented.” US securities class actions against companies domiciled outside of the US, but with US filings, saw an uptick, as did the number of legal disputes led by US plaintiffs’ law firms. The cost of litigation likewise rose.”[1] "The changes in the D&O market that kicked off around 2018 came as a result of three factors, according to Winsee Cheung, FINPRO and management liability placement leader at Marsh, who spoke on the topic during a recent Marsh webinar titled, “COVID-19: Considerations from a Director and Officer Perspective.”
As with anything related to COVID, D&O insurance claims are complicated by who’s affected and what a company does in response to lawsuits related to it. Among the ways to avoid these types of D&O claims is check what the state law is on reporting potential outbreaks and follow the guidelines outlined in returning to your workplace.
[1] https://www.insurancebusinessmag.com/us/news/professional-liability/covid19-hastens-the-pace-of-hardening-market-in-dando-230680.aspx